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What is VAT? All you need to know about Value Added Tax

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What is VAT

Value Added Tax (VAT) is a tax on goods and services consumed in the United Kingdom. It is a type of indirect tax, which means that it is levied on the sale of goods and services rather than on individual taxpayers.

VAT was introduced in the UK in 1973, and is currently set at 20% for most goods and services. However, some goods and services are exempt from VAT, including most food, children’s clothing, and books. In addition, some goods and services are subject to a reduced rate of VAT, such as energy-saving materials and children’s car seats.

Businesses in the UK are required to register for VAT if their taxable turnover exceeds a certain threshold. Once registered, businesses must charge VAT on their taxable goods and services, and must also pay VAT on goods and services they purchase from other businesses.

VAT is collected by HM Revenue and Customs (HMRC), and the proceeds are used to fund public services in the UK. Businesses are required to submit periodic VAT returns to HMRC, detailing the amount of VAT they have charged and the amount of VAT they have paid.

Filing a VAT return

Once a business is registered for VAT, it is required to file periodic VAT returns to HM Revenue and Customs (HMRC). These returns typically need to be filed every quarter, and they detail the amount of VAT the business has charged on its taxable goods and services, as well as the amount of VAT the business has paid on its purchases.

Filing a VAT return is a relatively simple process. Businesses can do it online through the HMRC website, or they can use accounting software to help them complete and submit their returns.

When filing a VAT return, businesses must ensure that they have all the necessary information, including sales invoices and receipts for any VAT they have paid. They must also calculate the amount of VAT they owe (or the amount they are due to be refunded) and pay it to HMRC by the due date.

Failing to file a VAT return on time can result in penalties and interest charges from HMRC. It is important for businesses to keep track of their VAT obligations and make sure they file their returns on time to avoid any potential penalties.

We are here to help!

IAK Accountants & Consultants are here to help you file your VAT returns. We can also help with the bookkeeping. Reach out to us to find out more.

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